How Much Can You Contribute to an IRA?
Explore the factors influencing IRA contribution limits, including income thresholds and catch-up options, to optimize your retirement savings.
Individual Retirement Accounts (IRAs) are a key part of many Americans’ retirement plans. Understanding contribution limits is critical for maximizing benefits and adhering to tax regulations.
General Contribution Limits
In 2024, the IRS set the contribution limit for both traditional and Roth IRAs at $6,500 for individuals under 50, with adjustments made annually for inflation. For married couples filing jointly, the limit remains $6,500 per individual, though combined income impacts Roth IRA eligibility. The phase-out range for married couples filing jointly is $218,000 to $228,000. If your modified adjusted gross income (MAGI) exceeds $228,000, you cannot contribute to a Roth IRA.
Income Threshold Factors
MAGI determines IRA contribution eligibility, particularly for Roth IRAs. In 2024, individuals filing as single or head of household face a phase-out range between $138,000 and $153,000, with contributions prohibited above $153,000. MAGI is calculated by adjusting the adjusted gross income (AGI), adding back deductions like student loan interest and foreign earned income exclusion. To reduce MAGI and maximize retirement savings, taxpayers can increase contributions to employer-sponsored plans such as 401(k)s or health savings accounts (HSAs).
Catch-Up Contributions
Individuals aged 50 and older can contribute an additional $1,000 to their IRAs in 2024, bringing their total limit to $7,500. This provision supports older individuals in bolstering retirement savings, particularly if contributions were deferred earlier in life. Catch-up contributions utilize compounding interest to grow funds, providing an added financial buffer for retirement. Eligible individuals should consider inflation and investment returns when evaluating this option.
Excess Contribution Penalties
Exceeding IRA contribution limits triggers a 6% excise tax on excess contributions for each year the overage remains in the account. For example, contributing $1,000 over the limit results in a $60 penalty annually until the excess is corrected. To avoid penalties, excess contributions and any associated income should be withdrawn before the tax filing deadline, typically April 15. Withdrawn earnings may be subject to income tax and a 10% early withdrawal penalty for those under 59½. Regularly reviewing account statements and maintaining accurate records can prevent these issues.